Changes in the AD/AS Model in the Short-Run

• Shifts in AD: consumption, investment, government spending, and net exports

AD shocks

• When you have a positive AD shock, there is an increase in price level and output, or real GDP (this can be inferred as a decrease in unemployment, as well).

• a negative demand shock would be caused by a decrease in any of the shifts of AD. Price level, output (real GDP), and employment fall

• 

Shifters of SRAS

• Input prices (resources)

• Wages

• inflationary expectations

• technology

Positive shocks to SRAS

• leads to an increase in the SRAS curve, which shifts to the right.

• Price level decreases, and output increases

• 

  .

Negative shocks to SRAS

• An increase in any of the aforementioned shifters, besides technology.

Demand-Pull inflation

• caused by an increase in AD

Cost-Push inflation

• Caused by a decrease in SRAS (increases in resource cost, wages, reduction in tech)

• The cost push inflation graph is stagflation, and is really bad because it leads to a situation where the economy experiences stagnant growth combined with high inflation, resulting in decreased purchasing power and increased unemployment.